NEW YORK--(BUSINESS WIRE)--Fitch Ratings has affirmed the 'A' rating for the Metropolitan
Transportation Authority, New York's (MTA) approximately $19.5 billion
in outstanding MTA transportation revenue bonds. The Rating Outlook is
Stable.

The 'A' rating reflects the gross lien on a diverse stream of pledged
revenues, the essentiality of the MTA's transit network to the economy
of the New York region, and the demonstrated ability of the MTA to
produce near-term solutions for its operating and capital needs. The
rating also reflects the need to generate sufficient cash to adequately
cover operations of the system despite high debt service coverage ratios
(DSCRs).

KEY RATING DRIVERS

Strategic Importance: The MTA transportation network is essential to the
economy of the New York region, with New York City Transit carrying an
average of 8.05 million daily subway and bus riders and Metro-North
Railroad and Long Island Rail Road (LIRR) carrying another 576,000 daily
commuter rail passengers. While an independent authority, the MTA has
received significant support from the State of New York in the form of
additional tax sources aimed at closing projected operating budget gaps
and addressing capital needs.

Highly Constrained Financial Operations: Despite high DSCRs from gross
pledged revenues, the MTA's financial position is constrained given its
extremely large operating profile and high fixed costs, including
significant retiree pension benefits. In addition, some of the MTA's
operating subsidies are vulnerable to economic conditions. While the MTA
is required to provide a balanced current year budget, some tools
available to meet a balanced budget, such as service reductions and fare
increases, are politically unpopular.

Solid Security Pledge: The bonds are secured by a gross lien on a
diverse stream of pledged operating revenues consisting of transit and
commuter fares and excess bridge tolls and non-operating revenues
consisting of various regional taxes.

Extremely Large Capital Needs: The MTA anticipates issuing a total of
$10.5 billion in debt (excluding Sandy Recovery) and a $2.2 billion
Railroad Rehabilitation and Improvement Financing loan to fund the $22.2
billion 2010-2014 MTA Capital Program, some of which has already been
issued. The MTA has the constant challenge of delicately balancing the
large rehabilitation and expansion needs of the system while covering
operating expenses and maintaining financial flexibility.

Growing Annual Debt Burden: The MTA's capacity to continue to leverage
resources to fund expansion projects while meeting renewal and
replacement needs may be limited in the future if projected financial
performance or additional operating subsidies do not come to fruition.

RATING SENSITIVITIES

Negative: Inability to achieve future projected operating efficiencies
and implement other key elements of the cost reduction initiatives
and/or maintain an ongoing state of good repair and other elements of
the capital program could pressure the rating.

Negative: Significant cost overruns or delays in the capital program's
mega-projects that lead to additional borrowing or deferral of core
capital projects may lead to negative rating action.

Negative: Receipts in dedicated tax subsidies that are measurably below
forecasted levels could pressure the MTA's financial flexibility and
pressure the current rating.

Positive: Given small near-term operating surpluses but medium-term
projected deficits positive rating movement is unlikely at this time.

SECURITY

The transportation revenue bonds are secured by a gross lien on the
MTA's operating receipts and subsidies, including: transit and commuter
rail fares and other operating revenues, surplus toll revenues, and
certain dedicated tax sources, state and local operating subsidies, and
reimbursements.

CREDIT UPDATE

The MTA's 2015 - 2018 July Financial Plan forecasts deficits beginning
at $252 million in 2014 growing to $1,114 million in 2018, before prior
year cash balances and adjustments are applied. The projected year-end
balances improve after the application of cash balances and adjustments
including fare and toll increases of 4% in 2015 and 2017 and MTA
initiatives such as various MTA efficiency measures and policy actions
(positive and negative from a cash flow perspective) including the
recent commuter rail labor settlement, funding of the labor settlement
from previously identified money for OPEB and pensions as well as
increased costs for safety related investments. Incorporating the cash
balances and adjustments, the MTA projects a cash positive position of
$162 million in 2014, $10 million in 2015, $146 million in 2016 and $113
million in 2017 while a deficit of $262 million is projected for 2018.

Since the February 2014 financial plan the MTA has had both favorable
and unfavorable re-estimates to their operating and non-operating
revenues and cost profile. Favorable re-estimates include lower health
and welfare/OPEB current payment estimates, lower debt service, better
than expected projected energy costs for 2015-17, lower pension
re-estimates, higher passenger toll revenues, higher real-estate
receipts for 2014 (partially offset by lower projections for 2015-17),
delayed opening date of East Side Access and related impact on operating
expenses and reduced 2013 spending that increased the carryover balance.

Offsetting the positives are lower than expected PMT receipts, higher
overtime re-estimates, higher safety investments, additional operational
and maintenance needs and additional service investments and customer
enhancements. Nevertheless, the favorable results significantly outweigh
the unfavorable results by $635 million through 2017. However, the
aforementioned commuter rail labor settlement is projected to increase
labor costs by approximately $1.3 million through 2017, resulting in a
$645 million net unfavorable through 2017. The July plan reflects these
additional costs, which are incorporated in the cash balances above.

While there continue to be significant risks to the MTA's near-term
financial profile including additional labor settlements at the same
levels as recent negotiations have concluded at, potential volatility in
some operating subsides (real estate related dedicated tax sources),
greater than expected elasticity from future proposed fare and toll
increases and the ability of the MTA to deliver on planned operating
efficiencies, the recent labor settlements with TWU and commuter rail
unions will provide some level of cost certainty for the foreseeable
future.

To the extent that any of these elements fail to reach current
expectations, projected year end cash balances could be significantly
larger than currently estimated. While the MTA has a demonstrated
history of closing outer-year deficits, it is Fitch's opinion that the
options available for new revenue generation are fewer in the current
environment. The MTA has made significant progress in implementing
operation efficiencies (above levels previously considered in some
cases) and the MTA continues to explore and implement new operating
efficiencies and cost reduction measures.

The MTA's 2010-14 Capital Plan continues to make strides in addressing a
state of good repair on the existing system while upgrading and
enhancing some elements such as safety and communication. The mega
projects including 2nd Ave. Subway, East Side Access, Fulton St. Transit
Center and the 7 line extension (city funded) continue to make strides
to their completion dates. The 2015-19 Capital Plan is expected to cost
between $27-$30 billion and aims to address continued state of good
repair projects ($20 billion), enhancement projects ($2-$5 billion) and
expansion projects ($5 billion). Other key elements of the plan focus on
safety, making the system more resilient and improve the overall quality
of service and experience.

The essentiality of the system to the greater NYC area and surrounding
counties is manifested by more than eight million daily riders. As
previously demonstrated, Fitch expects the MTA will successfully
implement its Capital Plan with funding from MTA bonds and its City,
State and Federal partners. MTA bonds across all liens are possible,
including transportation revenue bonds, dedicated tax fund bonds and
potentially leveraging the payroll mobility tax for a new credit. Fitch
will continue to monitor the size, scope and funding of the Capital Plan
and Capital Plan Review Board (CPRB) approval process and comment
further on future borrowing plans.

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